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Speaker 1: Let's get to our guest, old friend, Andrew Sullivan, Managing

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Speaker 1: director at outsit Global. Andrew, thanks very much for taking

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Speaker 1: out the time to be with us. So let's talk

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Speaker 1: a little bit about Japan. It could be a very

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Speaker 1: interesting time for investing in Japanese equities because one would

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Speaker 1: think with this process being started by the Bank of

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Speaker 1: Japan that institutional investors and other big investors will transfer

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Speaker 1: some of their bond holdings over to equity holdings. And

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Speaker 1: nothing happens too fast in this area in Japan. But

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Speaker 1: is that something I can count on going forward over

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Speaker 1: the next six to nine months. Well, I think there's that.

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Speaker 1: And I also think actually that a lot of these

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Speaker 1: Japanese companies that have been holding a lot of cash

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Speaker 1: on that balance sheets suddenly become very attractive M and

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Speaker 1: A targets, which maybe not what the government wants, but

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Speaker 1: certainly I think international investors will be looking at them

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Speaker 1: very closely. And I think the other thing you have

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Speaker 1: to bear in mind is now that if you go

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Speaker 1: back twenty years, the Japanese used to be one of

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Speaker 1: the best travelers in the world. You know, they had

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Speaker 1: reasonable savings, they had a good interest rate, and they

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Speaker 1: went and see the world now that they're going to

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Speaker 1: start getting interest on their savings. And I think they're

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Speaker 1: going to see a big change in the consumer attitudes

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Speaker 1: in Japan as well. So what does this mean from

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Speaker 1: an investing perspective, Where would you put money to work

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Speaker 1: in Japan right now? Well, I certainly think that the

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Speaker 1: consumer sector is going to be looking attractive. But also

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Speaker 1: I think you know, you do you look at these companies.

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Speaker 1: Japan is always reticent about M and A and certainly

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Speaker 1: about foreign investors, but I think you know, they're going

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Speaker 1: to be faced with the fact that you know, they

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Speaker 1: are attractive targets. You know, these are these are companies

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Speaker 1: that have been given free money for so many years. Um.

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Speaker 1: They've they've diversified themselves, they do their their their construction,

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Speaker 1: they're manufacturing out of Japan. They haven't been particularly hit

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Speaker 1: by the moves in the end exchange rate because they've

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Speaker 1: already offset that UM and I think that that you

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Speaker 1: will will see a lot of the certainly the private

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Speaker 1: equity money looking looking at them very attractively. We've seen

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Speaker 1: a big move in Hong Kong. The Hanksing Index has

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Speaker 1: come up from about fourteen thousand, eight to nineteen thousand

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Speaker 1: six D seventy nine. So a lot of that is

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Speaker 1: looking at the reopening in China, and perhaps it's looking

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Speaker 1: out to the FED getting towards the top of the

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Speaker 1: interest rate move. I'm not quite sure, but is that

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Speaker 1: move already is is a lot already in the price

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Speaker 1: So you think there's more momentum in Orgong, It's TRICKI

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Speaker 1: is now. I mean, we keep pushing up against the

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Speaker 1: twenty THO limits and not managing to break out. I

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Speaker 1: think there's still a lot of concerns. Certainly, interest rates

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Speaker 1: rising for the first time in so many years is

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Speaker 1: going to put a lot of the property sector under pressure,

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Speaker 1: and historically that's something that's been a real driver for

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Speaker 1: Hong Kong. We've still got a lot of problems in China.

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Speaker 1: I don't think the the recovery is going to be

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Speaker 1: a linear change. Um. As as we were saying at

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Speaker 1: the top of the hour, I mean, the fact is

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Speaker 1: that China will underrepresent the numbers. We won't have a

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Speaker 1: full picture of what's going on. But I think the

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Speaker 1: fact that the property sector in China is under such pressure,

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Speaker 1: and remember, you know, we still do not have an

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Speaker 1: exit strategy forever grand we've been waiting for that, and

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Speaker 1: without confidence in the property sector, I think China may well,

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Speaker 1: you know it'll it'll have trouble actually moving forward. And

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Speaker 1: the other thing from international investors point of view, the

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Speaker 1: fact that policy changes so quickly in China scares them.

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Speaker 1: I mean they like the fact that you know, in

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Speaker 1: the West, you know, if you're going to change policy,

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Speaker 1: it probably get consultation, six to nine months of talks

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Speaker 1: and then a change. In China, it can change every night,

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Speaker 1: and a lot of people have been hurt by that,

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Speaker 1: and I think that's going to be a problem in

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Speaker 1: terms of the property sector. Of the p BOC keeps

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Speaker 1: on pledging its intention to support this. So does that

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Speaker 1: give you a degree of certainty or do you remain

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Speaker 1: concerned that you know that there's a few more cockroaches

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Speaker 1: under the fridge to decline a phrase and three might

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Speaker 1: be no better. My real concern there is that is

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Speaker 1: it was probably one of the first statements they were

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Speaker 1: so they were going to encourage M and A. So

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Speaker 1: that basically tells you that the government is not going

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Speaker 1: to put any money in. They want the strong property

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Speaker 1: companies to to bail out the weak ones, and realistically

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Speaker 1: that just means that everything becomes worse because the good

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Speaker 1: companies that have done well have to take over these things.

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Speaker 1: And remember a lot of this problem comes from the

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Speaker 1: fact that they were using pre sale moneys, you know,

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Speaker 1: to fund land purchases. Um that that in itself means

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Speaker 1: that there is no cash there. So anybody buying a

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Speaker 1: failing property company in China has got to take on

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Speaker 1: and commit cash to it because the government is not.

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Speaker 1: The other really big problem I think is the fact

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Speaker 1: that local authorities rely on land sales for a lot

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Speaker 1: of the income to to fund their projects. So if

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Speaker 1: the property come is availing each other out, they won't

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Speaker 1: have enough money to do the land sales, and that's

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Speaker 1: going to put the local authorities under a lot of pressure.

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Speaker 1: So realistically, what we need to see is is China

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Speaker 1: change its tax system to be able to better support

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Speaker 1: you know, the distribution of money. Yeah, well, if foreign

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Speaker 1: companies leave China, is India the main beneficiary. I think India,

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Speaker 1: you know, it has its own problems, but certainly at

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Speaker 1: the moment it's it's making a big drive to attract companies.

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Speaker 1: I mean, you have to remember any over the last

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Speaker 1: two or three years since since Trump started tariffs. You know,

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Speaker 1: companies have been looking to move out of China and

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Speaker 1: real reorganize their supply lines, and a lot of those

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Speaker 1: companies have gone to Indonesia, to Vietnam and maybe Cambodia,

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Speaker 1: these sort of countries. But those countries Trump started this

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Speaker 1: on the base of balance of payments. You know, Vietnam's

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Speaker 1: balance of payments with the US now is in the

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Speaker 1: same scenario that China was when Trump started. So I

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Speaker 1: think India benefits from that. But you still got in India,

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Speaker 1: you know, the it's it's got a lot of advantages.

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Speaker 1: It's English speaking, it's attractive, it's got a very young population,

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Speaker 1: it's it's effectively where China was probably fifty and twenty

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Speaker 1: years ago. But you still have a lot of you know,

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Speaker 1: corruption there. You've still got the party politics are very disruptive.

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Speaker 1: So it has problems, but it has certainly got good opportunities.

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Speaker 1: And when you think about opportunities in India, a commodity

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Speaker 1: is a way to play that. I think probably one

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Speaker 1: of the best markets to play commodities in Asia at

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Speaker 1: the moment is still Indonesia. And again Indonesia is looking

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Speaker 1: to try and attract more on onshore investment, so you know,

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Speaker 1: it's banning, you know, the export of raw materials in

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Speaker 1: order to try and get companies to invest there. India

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Speaker 1: itself does not have that much as far as you know,

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Speaker 1: net raw materials. What it does have, though, is a

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Speaker 1: very young population that's well educated, reasonably well educated, and

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Speaker 1: English speaking, and that makes it very attractive for companies

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Speaker 1: setting up there. The problem you have, and I think

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Speaker 1: this is a problem that they are addressing and overcoming,

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Speaker 1: is you know, the local corruption is so difficult. Okay,

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Speaker 1: so we've gotten through this for and haven't even talked

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Speaker 1: about the FED yet. So I'll ask you a question

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Speaker 1: about the FED and try to tie it to UH

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Speaker 1: to your political conflict and see what your thoughts are.

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Speaker 1: What do you think ends first the war in Ukraine

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Speaker 1: or the Fed's rate hiking cycle. That's a very good question,

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Speaker 1: and I honestly don't know which one will end first.

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Speaker 1: I mean, Putin is not going to give up, and

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Speaker 1: the FED is not going to give up apart from

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Speaker 1: its mandate of trying to address inflation, I think reasonably though,

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Speaker 1: you know, the FED is it's a certainly talking in

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Speaker 1: aggressive talk, and it has a dual man date, which

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Speaker 1: makes it very difficult putin. I mean, I did read

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Speaker 1: an article yesterday that mentioned the fact that the Russians

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Speaker 1: were firing ammunition shells that were probably older than the

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Speaker 1: people that were firing them, which again is a cause

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Speaker 1: for concern. Um. The trouble is that it's it's all

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Speaker 1: about face for both. You know, the FED can't can't

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Speaker 1: change its motives. You know, it's it's found that inflation

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Speaker 1: is there. I think realistically, the whole of the investment

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Speaker 1: market is has got to go back to where we

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Speaker 1: were twenty years ago. Twenty years ago. The more worrying

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Speaker 1: thing for me, though, is the fact that you know,

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Speaker 1: since we introduced QUI to to bail out, nobody has

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Speaker 1: addressed unwinding QUI. And the FED has been very happy

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Speaker 1: in the US, has been very happy to buy bonds

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Speaker 1: and keep it keep the bond market very in control.

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Speaker 1: But as interest rates rise, that is going to increasingly

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Speaker 1: become a cost and that will be very very difficult

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Speaker 1: to address. Okay, Well, let's say we get the end

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Speaker 1: of the Ukraine War and the FED peaking in interest rates.

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Speaker 1: Is that a massive by signal? Well, bro I mean,

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Speaker 1: at the end of the day, there's always buying opportunities

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Speaker 1: in every scenario. It's it's just the companies. I think

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Speaker 1: the more interesting thing will be, you know, we have

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Speaker 1: talked for years about the zombie companies. As interest rates rise,

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Speaker 1: something will have to be addressed there, and we're going

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Speaker 1: to see bad companies go out and better companies survive.

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Speaker 1: We've got to save that for another session. That's a

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Speaker 1: whole new line of thinking, Andrew, but a good one.

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Speaker 1: Thanks for joining us. Andrew Sullivan, Managing director at Outset

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Speaker 1: Capital